Don't Make the Great Estate Mistake


"Dad, what happens to your guitars when you die?"

My daughter is used to asking shocking questions like these, especially when she is unable to overcome the urge – inscribed in our house rules – not to bother me in my office during working hours, except in case of emergency. .

That's pretty much always. The first time she asked this question, I had no immediate answer. After all, it's hard to explain the concept of "probate" to a 7-year-old.

But I have an answer for her now … so simple that even a child can understand it.

The probate pit

Homologation is the compulsory legal procedure upon the death of a person. He lists your property, ensures that all your debts are settled and distributes the rest to the heirs named in your will.

If you have not left a will, however, each state has its own rules that define who has the right to receive your property and how much. This "intestate" probate process can be lengthy, during which your heirs have nothing – sometimes not even access to the product of your life insurance. In most states, creditors are allowed to respond for a minimum period of time during which your estate can not be distributed.

The approval is also expensive. Legal fees, performance fees, hearing fees and other fees. Many states set these fees as a percentage of the value of your estate. Other allow lawyers to charge an hourly rate, subject to the approval of "reasonableness" by the court. This can lead to big problems if the probate judge is a golfer friend of your parents. lawyer.

Do you need a will?

You have probably heard that the musician Prince recently died intestate. Many people believe that he neglected to write a will, especially since the bulk of his wealth is the publication of rights on his music, valued at about $ 300 million.

Prince's reluctance probably had something to do with his almost irrational dislike of contracts – even a will, which is essentially a contract with your future deceased. But Prince was among the 55% of Americans who die without will.

In some cases, it makes economic sense. If you have little to leave, a will could cost more than certification. If you do not have instructions for your leftovers or messages to pass on to your heirs – another role of the will – you may be able to do without it.

On the other hand, anyone smart enough to sign up probably needs a will. That's because it's not just the Cut What matters in your estate … that's also essential.

If you have more than a bank account, a house and some personal property, a will is essential to ensure some control over how these assets are managed after you leave. For example, if you are the owner of a business and your heirs can not agree on its maintenance or collection, a probate judge may order the sale of the business so that it can be divided in accordance with the law in force in the state.

In my case, the ownership of real estate in many countries, various investments and a collection of valuable musical instruments make the will obvious.

Is a will enough?

Here is a simple rule: if the value of your estate and that of your spouse is greater than the combined gift and estate tax exemption – it currently stands at 10, $ 86 million ($ 5.43 million x 2), then you need more willpower. In this case, you must transfer some of your assets from your estate … but make them available to your heirs.

For example, the death benefit of a multimillion-dollar life insurance policy will be included in the value of your estate. Many people are shocked to discover that their parents' insurance, investments, real estate and other assets place them in the territory of inheritance taxes … which is expensive and complicated.

If you have long-term investments with unrealized gains, for example upon your death, the gain on these investments from the date of purchase will be treated as income for income tax purposes. the estates, even if they are not really liquidated. This could mean that your heirs must liquidate something else, such as the family home, so you do not have to sell valuable stocks.

In such cases, you will benefit from an irrevocable trust to receive certain assets (before or after your death). These assets are excluded from the calculation of your estate. Such a trust could even be the beneficiary of your life insurance policy, also keeping it out of your estate … and without accreditation, because the trust's assets are not yours.

Prosperity in the afterlife

Some people rely on faith to fulfill their wishes for the future. I am not one of them. Faith still has a role to play, but when it comes to your heirs, nothing beats a good old-fashioned contract with yourself – a testament.

After all, we do not know the day or the hour …

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